Last Updated on December 29, 2021 at 11:54 am
Here are 10 things mutual fund investors should not be doing! Avoiding these will make you a better and contented investor. Naturally, the following is an opinion formed from my experience (and nature) and naturally, I do not expect many of you agree with me.
The serenity prayer made popular by AA groups goes like this:
God grant me the serenity to accept the things I cannot change;
courage to change the things I can; and wisdom to know the difference.
Living one day at a time;
Enjoying one moment at a time;
Accepting hardships as the pathway to peace;
With a little experience, most investors would recognise that this applies to investing as well. In particular to mutual fund investing, where we have control over only three things (1) when we buy the fund, (2) when we exit from the fund (3) how well we can analyze the performance of the fund objectively (for which all we need is NAV data). The rest is not in our control. So here are 10 things mutual fund investors should not be doing!
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10 things mutual fund investors should not be doing!
- Do not look at the stocks that a fund is holding
- Do not see who the fund manager is
- Do not look at your daily gains and losses. Do not look at whether the market has moved up or down each day
- Do not look at the comments section of your fund’s page at Value Research
- Do not subscribe to AMC emails
- Do not look at star ratings
- Do not look for answers reg why a fund is falling down
- Do not look at annualized returns unless you invest for at least a year
- Do not ask other people about what to do with your investments!
- Do not panic if someone else is criticising your fund. Do not look for confirmation of your choices from other sources!
Bonus points
- Unsubscribe from all blogs (esp mine), investing groups, unfollow all Twitter handles related to investing, especially those with the dreaded bluetick
- Do not ask for real-life experiences of older investors.
Explanation
1: Do not look at the stocks that a fund is holding
Why? Because it is of no use. We* do not know why a fund manager picked a stock and we do not know why they exited or reduced its position. * very few can make meaningful inferences out of these and those do not need mutual funds in the first place!
2: Do not see who the fund manager is
Why? Because it is of no use. A fund manager is merely an employee of the fund house and can change jobs at any time. Getting attached to them is immature. I have seen many people talk about “investing styles” of these guys. It reminds me of a story.
There is a popular movie reviewer – very eloquent and detailed in his description of each move and he gave rave reviews for a movie. How artistic it was, how each shot and location was carefully selected and how many scenes have several nuances. The director of the film was shown this review and he laughed! The director said the movie was made with the only objective- make as much as money as possible in as little a budget as possible. Most of the nuances that the reviewer talked about are accidents and comprises!
Unless you have access to the investment decisions of the fund management, talking about it or trying to find out about it is a waste of time. I think such people will be happier with direct equity
3: Do not look at your daily gains and losses. Do not look at whether the market has moved up or down each day
Why? Because it is of no use.
4: Do not look at the comments section of your fund’s page at Value Research
Why? Because most of them will confuse you.
5: Do not subscribe to AMC emails
Why? Because they will send you emails about NFOs and market outlooks. Both are of no use to you and will confuse you.
6: Do not look at star ratings
Why? Because they look at a period different from that of your investment duration. In the stock market, when you look at something determines the outcome! You don’t want an irrelevant analysis, do you?
7: Do not look for answers reg why a fund is falling down
Why? Because you cannot find any. All you can do i speculate and it will not help
8: Do not look at annualized returns unless you invest for at least a year
Why? Because they do not make sense for shorter durations and even for longer durations is only a crude estimate. Read more: What is XIRR: A simple introduction
9: Do not ask other people about what to do with your investments!
Why? Because most of them know no better than you do and just act as they do
10: Do not panic if someone else is criticising your fund. Do not look for confirmation of your choices from other sources!
Why? It is stupid and immature to do so.
Bonus points
Unsubscribe from all blogs (esp mine), investing groups, unfollow all Twitter handles related to investing, especially those with the dreaded bluetick
Why? Because you do not need any of them. The only reason I am able to take investment decisions on my own is that I do not read anything, literally anything, including what I write. Try it, it will change your life. Start an Information Diet: How Less Information Can Make us More Informed
Do not ask for real-life experiences of older investors (solved example syndrome)
Why? Because it is of no use to you. It will look like it is useful when you read it, but it will wear off soon.
God grant me the serenity to accept the things I cannot change;
courage to change the things I can; and wisdom to know the difference.
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